Auctions in the United States are, by default, with reserve, meaning that the seller may accept or reject the highest bid received, and/or place a reserve amount (a minimum amount) on their item(s) dictating the auctioneer not sell them for any less.
Yet, some auctioneers sell items for less than these reserve amounts. How can this happen? How it was explained to me was that if the bid reaches an amount near the reserve (or even if it doesn’t,) the auctioneer can decide, unilaterally, to sell the item for less than the reserve, but make the consignor whole by reducing their commission, and/or making up any deficit. An example may be in order:
Julie has consigned an ornate fern stand to an auction house. The stand is possibly over 200 years old, and is quite fancy. Julie wants to sell this fern stand only if the high bid is $2,000 or more. Therefore, Julie has placed a “$2,000 reserve” on this fern stand. The auctioneer is charging Julie 15% commission, so if the fern stand sells for $2,000, Julie will net, after expenses, $1,700.
The auction begins, and the fern stand is offered to the crowd of bidders as the next item. The bidding begins at $500 and reaches $1,800 after about 30 seconds. The auctioneer does not receive any other bids after this $1,800, and declares the fern stand, “Sold!”
Can the auctioneer do this? Many do.
The auctioneer in our example will quite likely make the argument that he will lower his commission to $100, leaving Julie with a net of $1,700 — the same net she would have received if the fern stand had demanded $2,000. The typical view of this is that this is fine, since Julie nets the same amount she would otherwise.
I disagree. To assume that this net to seller number is the only concern is shortsighted.
Maybe Julie has 3 more of these fern stands in her antique shop, and didn’t want the market value to be perceived as $1,800, thus depreciating her remaining inventory? Maybe Julie was getting divorced, and her husband wanted the fern stand and she had already taken $2,000 worth of other items from the marriage, desiring him to pay at least $2,000 to balance this equitable split of property? Maybe Julie had a contract with a magazine editor that guaranteed her a story on her $2,000 fern stand — but only if it sold for at least $2,000? Maybe Julie had a bet with her neighbor that her fern stand would demand $2,000 or be “back in her living room by dusk?”
We could argue that Julie placed the reserve of $2,000 and since the bidding ended at $1,800, the auctioneer would either have to declare the fern stand a “no sale” or bid on behalf of the seller in hopes of raising the bid of the high bidder to the $2,000 level. We could also argue that if Julie had a specific other issue such as a magazine story, this should have been discussed with the auctioneer prior to the auction.
Nevertheless, it seems to me that auctioneers are certainly not authorized to sell items for less than the reserve unless that authority is expressly detailed in the contract between the auctioneer and his seller.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, Keller Williams Auctions and Goodwill Columbus Car Auction. His Facebook page is: www.facebook.com/mbauctioneer. He is Executive Director of The Ohio Auction School.